The Secret to America's Booming Economy: Give Money to Rich People; Screw Poor People
by John Lawrence, January 18, 2020
In short tax breaks and loans at zero interest for the rich. No interest on savings accounts for the poor. No wealth tax on the rich. Wealth taxes in the form of property taxes on poor homeowners. Quantitative easing and bailouts for the rich. Foreclosures and evictions for the poor. Today interest rates are negative in some parts of the world. This means the bank will pay you to take out a loan if you're rich. Since financialized capital knows no boundaries, any hedge fund operator or big bank or corporation can make money by borrowing money. You and I can't do that. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. That's versus zero interest on savings accounts.
Many corporations pay no Federal or local taxes. In fact they will be paid to locate a plant in some favored jurisdiction. The Center for Public Integrity reported:
At least 60 companies reported that their 2018 federal tax rates amounted to effectively zero, or even less than zero, on income earned on U.S. operations, according to an analysis released today by the Washington, D.C.-based think tank, the Institute on Taxation and Economic Policy. The number is more than twice as many as ITEP found roughly, per year, on average in an earlier, multi-year analysis before the new tax law went into effect.
Among them are household names like technology giant Amazon.com Inc. and entertainment streaming service Netflix Inc., in addition to global oil giant Chevron Corp., pharmaceutical manufacturer Eli Lilly & Co., and farming and commercial equipment manufacturer Deere & Co.
Your Federal Reserve (well, really it's not yours; it's privately owned by Wall Street) bailed out the Big Banks in the 2008 Great Recession to the tune of trillions of dollars. The Fed can electronically create money and use it to lend against collateral of various types, such as agency mortgage-backed securities or asset-backed commercial paper. This is effectively "printing money" and increases the money supply, which under normal economic conditions creates inflationary pressure. Ben Bernanke called this approach "credit easing", possibly to distinguish it from the widely used expression Quantitative easing. The Federal Reserve holds $2.5 trillion of U.S. Treasuries, which is roughly one-sixth of U.S. debt held by the public and one-eighth of the gross debt. The rest of the Federal Reserve's balance sheet contains other bonds and mortgage-backed securities bought as part of quantitative easing.
During the Great Recession the Fed printed money and loaned it to the Wall Street Banks taking risky asset backed securities off their books and onto the Fed's books. Today they're doing the same thing taking US government debt and effectively eating it. If the banks have risky loans or if the government can't auction off US debt (aka Treasury bonds), the Fed stands ready to eat this debt and print money to give to Wall Street and to the US government although it can't buy US Treasuries directly. So Wall Street is used as the middle man to buy the Treasuries, and then the Fed takes them off Wall Street's hands and books. All this activity comes at a price of course. The banks are paid handsomely for their activities in commissions. The Federal Reserve Bank of New York added $52.6 billion in short-term liquidity to the financial system Friday, January 17, 2020 to help money markets get through the weekend.
The Fed added the money in a repurchase agreement operation, or repos, that took in $10.9 billion in Treasuries and $40.8 billion in mortgages. The contradiction arises that if the Fed can effectively eat government debt which keeps the economy humming, why can't the money be used for a Green New Deal? Why does government deficit spending only have to be used to fund the military-industrial complex? It could be used to fund more worthwhile activities like the Green New Deal. During the original New Deal that's exactly what happened but with a bank created by the government, the Reconstruction Finance Bank. Unlike the Fed, this bank actually made a profit for the US government. And why can't individuals like you and me borrow at effectively zero per cent while speculators like hedge funds can? The Fed is essentially stepping in to bail out the speculators so that the whole system doesn't blow up again like it did in 2008. Meanwhile, the economy keeps humming proving that giving money to rich people and screwing poor people is the basis the US economy rests on. But it doesn't have to be this way.
